(Sam Swenson, CFA, CPA)
When it comes to locking in a higher Social Security check, learning the basics is a productive first step. If you want to have a higher spending floor in retirement, earning more and working longer are the main behaviors you need to focus on.
Only a small minority of workers manage the feat of locking in the maximum Social Security payout of $4,194 a month. A perhaps more realistic goal is to focus on factors you can control immediately.
Below, we’ll go over three ways to get a higher monthly Social Security benefit in retirement.
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1. Earn more
The Social Security system works a bit like an insurance company: you pay “premiums” in the form of social security contributions during your professional career and upon retirement receive an amount of allowance corresponding to the amount you have contributed. The more you contribute to the system, the more you can expect to receive when you claim benefits in retirement. Simple.
The Social Security Administration (SSA) taxes employee earnings at a rate of 6.2%, up to a maximum salary base of $147,000 in 2022 (soon to rise to $160,200 in 2023). Any amount you earn up to this amount is taxed accordingly, so the more you earn, the more you pay into the system. To the extent that you can earn more, you will be rewarded with a higher monthly check in retirement.
2. Work longer
The SSA considers all of your employment history when determining your Primary Insurance Amount (PIA). Specifically, it takes into account your 35 highest earning years. If you have had years of zero income at any point in your working career, those zeros will reduce your calculation. If you don’t have 35 years of work to show yet, you might consider working until you do. This ensures a more robust revenue stream when it comes time to collect benefits.
To see where you are right now, it’s a good idea to log into your Social Security account through the Social Security Administration website to see if you have any zero-earning years as part of the calculation. of your primary insurance. If you do, depending on the tolerance of your current work situation, it may make a lot of sense to stay in your job a bit longer to lock in a higher spending floor in your later years.
3. Spousal benefits
It may seem obvious, but coordinating benefits with your spouse is an effective way to get the most out of Social Security. If you were the low-income spouse during your career or the stay-at-home spouse, you would be eligible to receive a payment of up to 50% of your spouse’s benefits – assuming your spouse has started to receive their pension . advantages.
If you qualify for Social Security benefits based on your own earnings, you can start receiving them as early as age 62. Once your spouse begins to receive monthly retirement benefits, you will receive a potential increase in spousal benefits if they exceed your own retirement benefit. .
You will only get the full 50% if you have reached full retirement age, which for people currently in their 60s ranges between 66 and 67. Interestingly, spousal benefits also apply to ex-spouses you have been married for at least 10 years.
Plan your social security strategy
Much of what determines how much you will receive in retirement happens long before you apply. Earning more and working longer are the two keys to receiving more benefits. Coordinating with your spouse is another way to maximize your total dollars received.
Take the time to consider all factors – financial and non-financial – and develop a social security strategy with your family. If you are having difficulty, do not hesitate to contact a qualified financial planner for objective advice.
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